Just Out of College and I Want to Rebuild My Credit

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By Steve Rhode

WRAL Reader Question

I am a recent college graduate who just started my first professional job about 6 months ago.

I am happy that I am working but I need help with my credit.

I was sick when I was in college and I racked up a lot of medical bills.

As mentioned before, I was in college and broke so I had no way to pay them.

Unfortunately, most of the medical bills went into collections and affected my credit score.

I also had two credit cards that went into collection as well.

I would say that in total my debt is about 10,000 and that is not including my student loans which total 27,000.

I just want to know how do I go about paying for my debt and rebuilding my credit?

Should I consolidate or pay the collection agencies individually?

I would like to move out of my mothers house eventually and purchase my own. Is this even a possibility with my tarnished credit?

I make 50k a year, which isn't much but not bad for a new graduate. Help!

Joy

Answer

Dear Joy,

Thank you for using the link below to ask me your question. And welcome to life after college.

While your situation feels troubling the good news is this can all be repaired and you'll have better credit than before.

We need to tackle the old debt and work to eliminate it at the same time you are building new good credit.

If you have not done it already I would suggest the first step is to locate all of the reported debt about you. Get a consolidated credit report, it's one that reports all three credit bureaus on one report, or go to AnnualCreditReport.com to get a free copy of each of the three credit bureau reports.

While there is a charge for the consolidated report, I just find it so much easier to read and use so stuff does not get missed.

For details on what I want you to do with your credit report, click here. We need to hunt down all the outstanding accounts and start dealing with them.

Any medical collection accounts that are less than $100 need to be the last priority. So after you look over your credit report either post a comment with an update below and give me an idea what is outstanding or bring your credit report to the next Raleigh support group meeting and let me look it over for you.

At the same time as all of this is going on I want you to get a couple of secured cards with a $500 limit or more. You are looking for cards that report to all three credit bureaus. For more on this, click here.

The new good credit will help to pull your score up as we work on eliminating the old bad credit by paying it off.

You might also want to use the free service from CreditKarma.com to monitor your credit score and we can watch it going up.

Don't forget to build your monthly finances around making your full student loan payments and try to keep them out of deferment and reduced payment programs. Let's tackle that student loan debt as a priority and make it go away.

steverhodeMay 13, 2013

@68_dodge_polara Just as a point of clarification. Bankruptcy can discharge private student loan debt outside the statute of limitations and a chapter 13 bankruptcy can reduce private student loan payments and avoid collection fees in many areas.

68_dodge_polaraMay 13, 2013

Before graduating Collage is a good time to rid one self of medical debt with chapter 7, if one has little assets. Student loans can not be dissolved in bankruptcy. But I don't believe 10,000 is nearly enough to go through bankruptcy for. If I were in your shoes and my parents were willing to allow me to stay I might try to pay off the debt while living with them because with out bills you should be able to pay of the student loans and the 10 grand in two to three years depending on how disciplined you are. Once your out of debt don't jump in to a mortgage just yet because you'll make a many more times more progress towards paying off a home by saving for a large down payment than you would with a smaller down payment and having 95% of you mortgage payment going towards interest. Note that if you are talked in to buying a larger house by a real estate agent because you've saved a large down payment kiss the advantage of working hard saving for that large down payment goodbye.

About this Blog:

Steve Rhode has had careers in opthalmology, real estate and as the head of a nonprofit debt counseling firm. On his blog, he offers hard-won, free advice about getting out of debt, consolidation and making the right choices as you manage your money.